Joint Ventures as a Tool for Industrial Cooperation

A joint venture is one of the most sophisticated forms of cooperation between companies established in different countries. Through this model, two or more business operators combine financial resources, technical expertise, production capabilities and market knowledge to pursue a common project, while preserving their respective legal and economic independence.

In the Algerian context, a joint venture is particularly suitable where market entry requires a stable local presence, local manufacturing or the transfer of technology. The foreign partner may contribute capital, trademarks, patents, know-how and/or manufacturing processes, while the Algerian partner typically provides in-depth knowledge of the local market, commercial relationships, operational facilities and experience gained within the country. The relationship therefore goes beyond a simple supply arrangement and develops into a shared business project in which risks, investments and returns are allocated between the parties.

Algerian law does not regulate joint ventures as a separate contractual arrangement. Their legal framework derives from the combined application of the general principles of the Civil Code, the provisions of the Commercial Code and the legislation governing investments. The principal legislative reference is now Algerian Law No. 22-18 of 24 July 2022, which regulates both domestic and foreign investments and establishes the system of guarantees and incentives available to investors.

The Investment Law does not govern the content of the joint venture itself, but rather the legal environment in which it operates. Accordingly, it is the joint venture agreement that defines the parties' respective contributions, the governance structure, the allocation of profits and the management of the common business venture.

Contractual Joint Ventures and Equity Joint Ventures

Depending on the parties' objectives, a joint venture may naturally take different forms.

In a contractual joint venture, the parties regulate their cooperation through one or more agreements without incorporating a jointly owned company. Each partner retains its organisational independence and performs its respective obligations in accordance with the contractual arrangements. This model is particularly suitable for limited-term initiatives or projects aimed at carrying out a specific industrial or commercial undertaking.

Where, on the other hand, the transaction involves significant investments, manufacturing facilities or a permanent presence in Algeria, the parties more commonly establish an equity joint venture by incorporating a company under Algerian law in which they hold shareholdings. The newly incorporated company becomes the entity responsible for dealing directly with customers, suppliers, employees and public authorities, thereby concentrating the entire business activity within a single legal entity. As correctly highlighted in the preparatory work on this subject, this structure allows the company itself to become the holder of the assets, legal relationships and liabilities arising from the business carried on.
The choice between these two models depends on a number of factors, including the nature of the project, the level of investment required and the degree of integration sought by the parties. In more complex ventures, particular attention should also be paid to the choice of the corporate vehicle and to ensuring consistency between the company's articles of association and any shareholders' agreement, so that the governance arrangements and the rules governing the transfer of shareholdings operate in a fully coherent manner.

Foreign investment and the abolition of the 51/49 rule

For many years, foreign investment in Algeria was governed by the so-called 51/49 rule, under which Algerian nationals were required to hold a majority interest in companies established with foreign capital.

The legal framework was substantially reformed by the Supplementary Finance Law for 2020, which abolished this general principle, retaining it only in the specific cases expressly provided for by law. Today, the requirement for majority Algerian ownership continues to apply solely to sectors classified as strategic, as well as to activities involving the importation of goods intended for resale in the same condition in which they are imported. For all other manufacturing and service activities, foreign investment may be carried out without the obligation to associate with a local partner.

This legislative reform has significantly changed the role of joint ventures. In most cases, cooperation with an Algerian company is no longer a legal requirement but may instead represent a strategic choice, enabling the foreign investor to benefit from the local partner's experience, expertise and established presence in the Algerian market.

The content of the agreement and the balance between the parties

The success of a joint venture depends to a large extent on the quality of the agreement governing the relationship between the parties. In the absence of specific legislation, it is the contract itself that defines the framework of the cooperation by regulating the parties' respective contributions, the governance of the venture and the management of the common project.

One of the first issues to be addressed concerns the nature of each party's contribution. In international practice, the foreign partner's contribution frequently extends beyond the mere provision of capital and includes technologies, patents, trademarks, know-how, manufacturing processes and managerial expertise. The Algerian partner, on the other hand, typically contributes its knowledge of the local market, commercial network, operational facilities and experience gained within the country.

Another key aspect concerns the governance of the joint venture. The establishment of a jointly owned company does not eliminate the possibility of disagreements regarding strategic decisions, future investments or the day-to-day management of the business. For this reason, international joint venture agreements usually regulate in detail the composition of the management bodies, the voting majorities required for the most significant decisions, veto rights and the matters reserved for the joint approval of the partners.

Particular attention should also be paid to potential deadlock situations, namely circumstances in which disagreements between the shareholders prevent the adoption of decisions essential for the continuation of the business. This issue is particularly common in joint ventures where the parties hold equal shareholdings. To minimise the risk of management paralysis, international contractual practice frequently provides for negotiation or mediation procedures, as well as buy-sell clauses, enabling the parties to overcome situations of stalemate that could otherwise jeopardise the continuity of the venture.

It is equally important to regulate the parties' exit strategy from the outset. Since joint ventures are often established as long-term business relationships, it is not uncommon for the industrial or financial interests of one of the partners to change over time. For this reason, the agreement should clearly regulate the transfer of shareholdings, rights of first refusal, approval requirements for transfers, withdrawal rights and the consequences arising from any breach of contract by either party.

Applicable law and dispute resolution

One of the most sensitive aspects of international joint ventures concerns the choice of the applicable law and the mechanisms for resolving disputes. Subject to the mandatory provisions of Algerian law, the parties are generally free to determine the law governing their relationship, designate the competent court or agree to submit disputes to international arbitration.

The latter option is frequently preferred in transactions involving investors from different jurisdictions, as it allows disputes to be referred to arbitrators with specific technical expertise while ensuring a greater degree of confidentiality than ordinary court proceedings. Algeria is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a circumstance that facilitates the international recognition and enforcement of arbitral awards.

In relations between Italy and Algeria, investor protection is further strengthened by the Convention on Judicial Assistance in Civil and Commercial Matters, signed in Algiers on 22 July 2003 and ratified by both States. Among other matters, the Convention governs the recognition and enforcement of civil and commercial judgments, as well as arbitral awards, subject to the conditions laid down therein.

Furthermore, Algerian Law No. 22-18 of 24 July 2022 expressly recognises investors' right to resort to conciliation, mediation and arbitration for the settlement of investment-related disputes, thereby further strengthening the legal safeguards available to foreign investors.

Final remarks

Joint ventures currently represent one of the most effective legal and business structures for carrying out industrial and commercial investments in Algeria, particularly where the project requires a permanent presence in the country, the transfer of technology or close cooperation with local operators.

Recent reforms of the Algerian investment regime have created a more favourable legal framework for foreign investors by significantly reducing restrictions on foreign ownership and strengthening the system of legal guarantees. Nevertheless, careful contractual structuring of the transaction remains essential.

In the absence of specific legislation governing joint ventures, the agreement itself plays a decisive role in regulating the parties' respective contributions, the governance structure, the protection of know-how, the economic relationship between the parties and, as discussed above, the mechanisms for resolving any disputes that may arise.